Forget China: The next growth markets

China’s economy, with a growing middle class that companies would love to feed, clothe, house, and entertain, has hit some speed bumps recently:

GDP growth is expected to slow to 8% for the first quarter, compared to 8.9% from the previous quarter.

Only four of China’s 70 largest cities saw home prices rise in February.

Exports to Europe declined over 1% for January and February compared to last year.

China’s total trade deficit for January and February was $4.25 billion, up from $890 million last year.

With China slowing, what country should investors look to next? Why not listen to the man responsible for coining the term BRIC (Brazil, Russia, India, and China): Jim O’Neill.

Even if he does work for the not-so-popular Goldman Sachs(NYSE:GS), O’Neill highlighted countries that, if measured by the Dow Jones BRIC 50 Index, outperformed the S&P 500 by almost 600% from the beginning of 2003.

What countries does O’Neill think are primed for growth? Get ready for another catchy acronym: MIST, meaning Mexico, Indonesia, South Korea, and Turkey. All these countries rank worldwide between the 10th and 20th largest GDPs and had GDP growth rates above 5% for 2010. Let’s dig a little deeper into the opportunities of each country.

MexicoYes, since 2006 almost 50,000 people have been killed in drug-related violence. However, with polls for July’s presidential election favoring the opposing party’s candidate, the support for the drug war appears to be waning. Given a more secure country, investors and companies could see better returns. Already, Coca Cola(NYSE:KO) is investing $5 billion over five years in Mexico with plans to increase its workforce by more than 10%. Meanwhile, Ford(NYSE:F) is investing $1.3 billion in a northern Mexico plant to produce the Ford Fusion and Lincoln MKZ.

Want a piece of Mexico that’s backed by the genius of McDonald’s (NYSE: MCD)? A promising pick with a large footprint in a BRIC country is Arcos Dorados(NYSE:ARCO) . The company owns, operates, and grants franchises of McDonald’s in Latin America, and 26% of its restaurants are located in Mexico, Panama, and Costa Rica, with about 36% located in Brazil. As Mexico and other Latin American countries grow wealthy, serving food in these countries begins to look appetizing.

IndonesiaGuess which country quietly sits behind the U.S. in terms of population? Since this paragraph is about Indonesia, I’m assuming you guessed correctly; Indonesia is the world’s fourth most populous country. Rather than taking the traditional first step of adopting landline service, Indonesians have skipped straight to cell phones. Mobile phone ownership was at 20% in 2005, and in 2011 it skyrocketed to 54%. Along with that, Indonesian users are the second-largest market on Facebook and third-largest on Twitter. As more services and data are delivered by mobile, take a look at Telekom Indonesia(NYSE:TLK) . It sports a 4.7% dividend yield and is the country’s largest mobile network operator. Our own Coca-Cola Amatil(ASX:CCL) sees significant growth opportunities in Indonesia, too

South KoreaWhile its neighbor to the north tries out a new ruler, South Korea looks to break free from the conglomerates that run its economy. As reported in the Financial Times, “The top four conglomerates alone earn 27 per cent of all profits.” And even though South Korea has an enviable 3.4% unemployment rate, 34% of workers were in temporary jobs. Even so, theiShares MSCI South Korea Index Fund(NYSE:EWY) returned 160% over the past decade. Remember to note the expense ratio when looking at ETFs like this one, and also what exactly it holds — in this case, an expense ratio of 0.59% and significant holdings inSamsung and Hyundai.

TurkeyTalked up because of its unique position between world regions, Turkey is also exposed to geopolitical issues in the Middle East and economic fallout from Europe. Additionally, Turkey imports 71% of its net energy use, making it susceptible to high oil prices. Still, in a world where demand from European countries may fall, 70% of Turkey’s GDP comes from household consumption. If Turkey interests you, the iShares MSCI Turkey Index Fund (NYSE: TUR) is an easy way to place the country in your portfolio. However, note that the ETF is heavily invested in Turkish banks, and with a pullback from banks worldwide — for example, Citigroup looking to cut its ownership stake of Turkish Akbank — that financial sector may struggle.

A MISTy portfolio may also grow moldAs with all emerging and growth countries, any excess returns are paired with more risk. There is no guarantee Mexico’s drug war will find a ceasefire, natural disasters could again harm Indonesia, South Korea always keeps an eye northward, and Turkey’s bridge between East and West may just mean it is exposed to both slow growth and political instability. Therefore, do your due diligence on both country and company before investing in the MIST.

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China’s economy, with a growing middle class that companies would love to feed, clothe, house, and entertain, has hit some speed bumps recently:
GDP growth is expected to slow to 8% for the first quarter, compared to 8.9% from the previous quarter.
Only four of China’s 70 largest cities saw home prices rise in February.
Exports to Europe declined over 1% for January and February compared to last year.
China’s total trade deficit for January and February was $4.25 billion, up from $890 million last year.

With China slowing, what country should investors look to next? Why not listen to the man responsible for…

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